Chinese Property Investors May Be Putting The Brakes On U.S. Buying
The rise in the yuan and stricter Chinese government control could see Chinese investors spending their cash closer to home.
The news all luxury real estate brokers dread: The Chinese may be pulling out of US property investing. It’s not a done deal but recent statistics are worrying. As fear about the yuan depreciation eases and concerns about Donald Trump’s protectionism stance increases, Asian property investments fell by 12 percent to $29.1 billion last year, Bloomberg reports.
“The bulk of yuan depreciation has probably already happened, and if that’s the case there is less incentive for Chinese investors to place money in dollar-denominated assets,” said Andrew Haskins, executive director of Asia research and advisory services at Colliers International, who referenced the numbers above. Haskins cited Real Capital Analytics data supplemented by Colliers calculations in his research which showed Chinese capital accounted for 43 percent of US real estate investment from its 2015 peak of $33 billion.
Haskins says that the surge in US assets while the yuan was depreciating made sense. But now, Chinese investors may be more likely to put their money in places closer to home. Chinese investors haven’t run for the hills yet and neither are they likely to. Despite an American president who has been hostile to China in his rhetoric, the attraction of American education and returns on investments and healthcare make it too much to give up en mass.
The US government would, however, be wise to tone down their fractious language when it comes to China. Chinese real estate investment has created over 200,000 American full-time jobs over the last six years. It also brought in more money from individual foreign investors than any other country, says a 112-page report by the Rosen Group. According to the Asia Society, 20,000 Chinese individuals were awarded the EB-5 immigrant investor visa, which is given to individuals with a few million for job creating purposes—not just house hunting. Within that EB-5 program, China accounts for 70 percent of the visas. All told, they’ve brought in $9.5 billion into the U.S., or roughly $1 billion per year over the last ten years.
US concerns over the yuan’s rise is coupled with stricter capital controls from China. Both threaten to dampen appetite and change the rate at which money is invested overseas. China’s State Council—the country’s most powerful government body—sent a notice to all government departments requiring them sign off on all foreign acquisitions over $10 billion or $1 billion if it’s outside of the acquirer’s “core” business. The notice also said to halt foreign real estate purchases more than $1 billion by state-owned enterprises. Though the rules are not new, market watchers suggest that the notice indicated that the rules would be more strictly enforced. The outflow of capital from the country was thought to be responsible for the depreciation of the yuan which further encouraged investors to diversify into other currency. Its rise, naturally, may cause Chinese to look at their homeland with more affection.
Many, though, don’t see things as an either/or situation. The US will always offer things other countries can’t.
“The investment opportunity is the United States, itself,” James A. Fetgatter, Association of Foreign Investors in Real Estate chief executive, said in a prepared statement. “The real estate fundamentals are sound; the economy continues to be strong; there are opportunities across all sectors of the real estate spectrum and in both gateway and secondary cities,” he said.
Brokers, breathe easy.
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